Sesa Sterlite Ltd's reported Q2FY14 production volumes were in line with our estimates in the zinc-lead segment (+14% q-o-q) and weak in the power segment (-40% q-o-q). As expected, the management lowered mined metal guidance for Zinc India by 5% to 950 kt after volumes of 460 kt in 1HFY14—still a healthy 9% y-o-y growth.
The power business disappointed with Sesa Sterlite’s 31% PLF due to weak demand and requires closer scrutiny. Volume growth in Sesa in FY14E will be limited to Zinc India and the power segment.
After the recent run-up in the stock price (up 40%,over the past two months) upside will be modest from hereon. We maintain our ‘add’ rating with a 12-month forward target price of R200.
In line with our expectation, Sesa Sterlite reported strong volumes in Q2FY14 for its zinc businesses. Zinc India reported refined zinc volumes of 196 kt (+13% q-o-q, +20% y-o-y), led by improved utilisation at the smelters.
Q1 refined zinc volumes were lower due to a roaster shutdown. Lead volumes declined 3% q-o-q to 32 kt due to lower custom smelting. HZ earlier indicated lower custom smelting due to poor margins, especially with weak acid prices. Integrated silver volumes rose 8% q-o-q to 84 tonne while custom silver volumes were only 6 tonne (-66% q-o-q)—in line with the decline in custom lead smelting.
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